Sen. Juan Edgardo Angara, chairman of the Senate ways and means committee, rejected calls to raise the value-added tax rate to compensate for the projected revenue loss from reducing income tax rates as pushed by the Duterte administration. File photo
MANILA, Philippines – The Senate ways and means committee will review value-added tax exemptions to help raise revenues in lieu of hiking the 12 percent VAT rate, Sen. Juan Edgardo Angara said yesterday.
Angara, chairman of the panel, rejected calls to raise the value-added tax (VAT) rate to compensate for the projected revenue loss from reducing income tax rates as pushed by the Duterte administration.
“I don’t agree with the move to increase VAT as it would only burden ordinary Filipino consumers. The VAT is a pass on tax – meaning businesses and corporations claim their input tax but they pass on the ultimate tax to the consumers,” Angara said.
“So it kind of defeats the purpose of having inclusive growth because by raising VAT, we’re passing on the burden to ordinary Filipinos who are paying the taxes,” he said.
Apart from working on the reduction of income tax, the committee review the list of exemptions from VAT coverage and identify the transactions that should no longer be exempted from the tax, he said.
Budget Secretary Benjamin Diokno is reportedly pushing to increase the VAT rate from 12 percent to 14 percent while Finance Carlos Dominguez is working on more efficient in tax collections.
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The last increase in VAT rate from 10 percent to 12 percent took effect in 2006. This VAT hike resulted to a higher VAT collection from P156 billion in 2005 to P259 billion in 2006.
The Philippines’ 12-percent VAT is already the highest in the Southeast Asian region, which has an average sales tax at 8.56 percent.
A study by the National Tax Research Center (NTRC) showed that with the current VAT rate of 12 percent and a collection effort of 3.75 percent indicates that only around 30 percent of the economic activities were captured by VAT.
The same study also estimated the country’s VAT gap, which represents the difference between potential VAT revenues and actual collection, stood at P135 billion in 2009.
NTRC said the ballooning VAT gap may be attributed to weak tax administration, under-declaration of sales, non-issuance of receipts, and excessive claims of input VAT.
“The country also has a huge informal economy. We want to engage those people by formalizing them and getting them not necessarily to pay taxes but to register so the government can give them assistance,” the senator said.
He said owners of small businesses believe if they remain underground, they can avoid bureaucratic fees and other costs. But it must be impressed upon them there are incentives when they register.
Angara has filed bills seeking to reduce personal and corporate income tax rates to make the country more competitive.